Mayaram panel submits report on NSEL crisis

A high-level committee, chaired by Economic Affairs Secretary Arvind Mayaram, submitted to Finance Minister its report on the alleged irregularities at the National Spot Exchange Ltd (NSEL). The panel has found “minor systemic” problem and the report details long term measures to deal with such irregularities.

What is the National Spot Exchange Limited (NSEL)?

National Spot Exchange Limited (NSEL) is a Commodities exchange in India, and is a joint venture of Financial Technologies (India) Ltd. (FTIL) and National Agricultural Cooperative Marketing Federation of India (NAFED). The exchange launched its live trading operations in different commodities on October 15, 2008. It began trading in pre-certified cotton bales for Mumbai delivery and imported gold and silver bars for Ahmedabad delivery immediately, and has since added a number of commodities.

The mission of the exchange is to develop a common Indian market by setting up a nation-wide electronic spot market and providing state of art trading, delivery, and settlement facilities in various commodities.

What is the issue of NSEL?

The NSEL is going through a financial crisis in settling dues worth Rs 5,600 crore. All the operations of the NSEL are completely shut since August 5, 2013. The exchange blamed the government for the structural changes it instructed for creating market disequilibriumwhereas other experts believe NSEL was required to be deliver commodity physically instead the exchange facilitated use of electronic warehouse receipts, enabling investors to avail of the arbitrage, without taking physical possession of goods. The loopholes in contracts and insufficient underlying stocks to cover liabilities led to financial crisis.

Why did the government constitute Mayaram Committee?

The Committee was set up to look into the issue of NSEL failure and recommend measures to fill the gaps in the oversight of spot exchanges. The main issue was whether NSEL violated the Government exemption for one-day forward trading and also the ban on all short sales.